How Older Economists Retired Rich

Most of the academic economists I know were able to retire rich. I define “rich” in a special way: the ability to quit your day job, retire permanently, and not suffer a reduction in your lifestyle. There are a lot of people who think the government has promised to enable them to achieve this. There are relatively few people who will be able to do this. There is therefore a political head-on crash facing every Western industrial nation.

The academic economists I have known well were able to begin their careers early, and these careers involved steady salaries. They were very frugal individuals. They saved their money, and it did not matter much the particular markets in which they invested.

Henry Hazlitt was a friend of mine. I was a young man, and he was kind enough to talk to me over the years. Hazlitt had a tremendous advantage over other economists. He never went to college. So, he taught himself economics, and he taught himself by reading voluminously in the works of economists who still wrote in something resembling English. The economists who wrote this way for the most part had a fairly clear understanding of cause and effect in economics. In other words, they were not Keynesians.

So, he was able to get a clear grasp of economic logic, and at the same time, he was a frugal man. He did not get rich because of his understanding of Austrian School economics. He got rich because of his clear understanding that you have to save, and save like a maniac, from an early age, in order to get compound interest on your side.

Hazlitt died at the age of 98. He entered the job market around 1913. That was early in the year that the Federal Reserve was created. He went through the great crises of American economic life: World War I, the recession of 1921, the great boom of the 1920s, the Great Depression, World War II, and the post-World War II expansion. Through all of this, he continued to save. Because he did not have children, he was able to save more than most people do. When he died, he left a sizable estate to the Foundation for Economic Education. He had enjoyed a long career as a writer, and he retired in comfort. I would call him rich. But he was not rich because of any particular skill that he had in beating the capital markets.

Another economist I knew who died rich, according to my definition, was Hans Sennholz. As an immigrant from Germany in the early 1950s, he was extremely frugal. He once told me that in his early years he saved half of his income. He got a job at Grove City College in 1955, and he held that job until 1992. He bought real estate throughout the entire period. Then, after he retired in 1992, he took over running the Foundation for Economic Education for the next five years. So, his expenses then were close to zero — free rent — and he was able to save even more money. By the time he really did retire, he had a large portfolio of houses and even a small hotel. That income sustained him, and it still sustains his widow.

When I worked for the Foundation for Economic Education, there was a man on the staff name Charlie Curtis. Except to serve as a kind of part-time accountant, I never figured out what Charlie did for a living. But he was well-paid, and he had been well paid as an academic by the time I met him for at least 30 years. As he freely admitted, he simply bought stocks and held them. That meant that he started buying stocks at the beginning of World War II, and he kept buying them. By the time he retired, he was worth a lot of money. He was there during the great expansion: the boom for stocks. That was back when stocks paid 4% dividends. He reinvested the dividends. So, I’m sure he had a comfortable retirement.

Again and again, I heard this story. The economists I knew who did well had steady incomes, and they were thrifty. I never met any of them who claimed to have a technique for predicting the markets. In fact, because most of them were Austrian School economists, they denied the possibility of having such formulas. They just saved a lot of their money, and in Sennholz’s case, he took on a lot of debt to buy houses, and his renters paid off this debt.

Most economists have TIAA/CREF retirement programs, which they do not personally manage. They have high salaries, or least those of my generation did, because they got hired early. They kept their jobs, they saved their money. Then they bought their own homes. Their assets when they retired constituted their homes, which they had probably paid off, and their retirement portfolio. I don’t know if all of them will make it to age 85 in comfortable surroundings, but at least they have a shot at it. They were employed by an academic cartel, and they enjoyed above-average salaries because they had gotten through the barriers of entry into this cartel. They got in early enough so that their salaries were above market. Younger economists starting out today do not have this advantage. They are not going to retire rich.

The point I’m making is this: economists do not retire rich because of their skills at predicting markets. They retire rich, assuming the next generation will do so, only because they got into an academic cartel, got a relatively high-paying job early in their careers, and they saved maniacally during their entire careers.

HOOPS, NOT FORMULAS

This leads me to a conclusion. The success of economists in accumulating capital is based on their having gone through a series of academic hoops that have nothing to do with the understanding of actual markets. They lacked entrepreneurship in the general sense of being able to forecast markets, and invest in terms of their forecasts. They used conventional means of achieving wealth, and the only major exception I ever knew in this reguard was Sennholz, who did a fairly conventional thing when he invested in real estate. He understood enough about local market conditions so that he could identify a house that was a bargain.

He once told me that one of his secrets was to buy houses that had been and tested with termites.

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Yeah, that was because almost no one wanted to touch the house, so he could get it for a song, then he got rid of the termites. He knew that termites could be eliminated — probably most people don't know that.